Configuration of Gross up Wage Type in SAP

Purpose
The purpose of this document is to give an explanation how the system handles the gross-
up within the Payroll USA and the concept of the gross-up wages.
Overview
Introduction to gross up calculation in SAP US Payroll, wage types configuration and
processing class definition.
What is a gross up?
A gross up is a type of payment in which a gross amount is calculated so that, after taxes
are deducted, an employee receives a specified net payment. The specified net amount is
called the "guaranteed net amount" and the calculated gross amount is called the "grossed
up amount."
In SAP payroll, the user enters the guaranteed net amount into master data. During payroll
processing, the system passes the net amount to BSI, which determines the gross amount,
that ill yield the net after taxes have been deducted.
The guaranteed net wage types can be identified by a Processing Class 68 value of 5 (Gross
up using regular method) or 6 (Gross up using supplemental method).
SAP delivers the model wage types M031 and M032 for gross up payments. M031 is the
guaranteed net wage type and M032 is the gross up amount wage type. M031 and M032
are linked in view V_512W_B

IMG Path: Spro - Payroll USATaxTax-related Wage typesMaintain Gross up Wage
types).
M032 is the first derived wage type of M031. The linked wage type M032 stores the grossed
up amount that is calculated by BSI. Both the guaranteed net and grossed up amounts are
stored in the Results Tables.

For example, suppose you wish to pay an employee $1000 after taxes has been taken. In
Infotype 15, you could create a record with wage type M031 with a $1000. The $1000
guaranteed net amount is passed to BSI, which determines the gross amount that would
result in a net amount of $1000 after taxes. Suppose that BSI calculates that a gross amount
of $1500 will result in a net payment of $1000. The system creates the wage type M032
with an amount of $1500 and stores this and the M031 wage type in RT. The grossed up
amount is affected by several factors, including pay schedule (weekly, bi-weekly, semi-
monthly, etc.) and the tax types that are relevant for the employee.
There are two distinct types of gross ups: cash and non-cash. Cash gross up is one where the
employee will receive an actual cash amount. In this case, the grossed up amount is set to
accumulated into /101.

The SAP delivered model wage types for gross ups are cash wage types. In other words, the
wage type M032 is set to accumulate into /101. Typically, cash gross ups are used for bonus
payments, such as yearend bonuses. Some companies use cash gross ups to pay expatriate
employees.
A second type is gross up payment is non-cash gross up. In this case, the grossed up wage
type is not set to accumulated into /101. SAP does not currently deliver model wage types
for a non-cash gross up. Non-cash gross up is typically used to determine a payment for
taxes on a taxable employee benefit. For example, suppose that an employee has the use of
a company car. This benefit is considered to be taxable, so the employee would be liable for
taxes on the use of the car. An employer may decide that the company should make a
payment to cover the tax liability for this benefit. A non-cash gross up would be used to
determine the tax owed on this benefit.
Processing
The processing of the gross up calculation is done in the payroll function USTAX. The gross
ups are processed before the processing of the gross-to-net wages. Each gross up payment
to be processed in the pay period is done in a separate BSI call. There is minimal processing
for the gross up calculation. All that is needed is the guaranteed net amount along with the
relevant tax types. This information is passed to BSI, which returns the grossed up amount
along with the taxes. Deductions are not considered during payroll processing.


M031 Gross up Regular Method
M032 Gross up Result-Regular Method
M033 Gross up supplemental Method
M034 Gross up Result-supplemental Method